Malloy should reject budget and revise cap

Published 3:25 pm, Monday, June 10, 2013

Passing a biennial budget is arguably the most important responsibility of our elected state officials. The budget lays out a set of priorities for the state, reflects collective values and charts a course for the future. Unfortunately, while passing a budget is a critical function, it typically incites partisans and ideologues from all sides. Given the enormous amount of rhetoric and spin over the past few weeks, it is hard for the average citizen to separate fact from fiction.

Our state has serious economic, competitiveness and financial challenges. Connecticut has the worst job creation record in the nation over the past several decades, and the state leads the nation in many fiscal categories that a state doesn't want to be first in (e.g., total liabilities and unfunded promises per taxpayer). Some modest progress has been made in recent years on some fronts, but if this budget and the process by which it was achieved is any indication, our future outlook for truth and transformation is poor.

For example, the most contentious issue over the past several weeks has been the state spending cap. By way of background, when the state faced a budget crisis in 1991 and passed the income tax, many legislators feared it could lead to out-of-control spending. The result was the constitutional spending cap, which mandates the growth rate in spending be limited to inflation or the average growth rate in personal income over the previous five years, whichever is higher.

At issue over the past several months has been how to treat the new influx of federal revenue due to the Affordable Care Act as it relates to the spending cap. Historically, the spending cap has been measured on a gross basis, meaning that it includes any revenue received from the federal government. Changing the spending cap definition requires a three-fifths vote in the both houses of the Legislature. Ben Barnes, secretary of the Office of Policy and Management, acknowledged such back in February when the governor proposed his budget. Yet the Democratic Legislature pushed the change through the Finance, Revenue and Bonding committee to avoid the spending cap and the final budget did not achieve the required three-fifths vote in the Senate.

Governor Malloy and the Democrats claim Republicans are playing politics with the spending cap, and if they had their way, the state would have to refuse billions in federal dollars for Medicaid. Republicans claim Malloy and the Democrats have violated the constitution. So who is right?

The truth is both sides have a point. The definition of spending in the cap should be changed to consider net state spending, not gross. Otherwise, Connecticut would have to turn away federal dollars. Such a change is also consistent with how all other states measure Medicaid funding. Yet the way the budget was pushed through shows an utter lack of truth and transparency by the Legislature.

Second, the debate over taxes suffered from the same lack of truth and transparency. Democrats may claim there are no "new taxes" in the budget, but historically the practice of extending taxes set to expire has been considered a new tax. For example, the tax on power plants will be extended for three more months, and the 20 percent surcharge on the corporation tax will be extended until 2015.

Legislators also did not act to stop the scheduled July 1 tax increase on gasoline. The approved budget will shift $91 million from the transportation fund, leaving it with a $104 million shortfall in 2014 and $84 million shortfall in 2015. The American Society of Civil Engineers ranks our roads as the worst in the country, so we need more critical investment in infrastructure, not less. Therefore, raiding the "trust fund" to pay for other state operating expenses is both inappropriate and irresponsible.

These are just a few examples of the lack of truth and transparency in the new state budget. There are, however, a few good things about the budget. For example, Governor Malloy does deserve credit for allocating additional funding for pension and retiree health care benefits, and he is moving toward GAAP accounting. He also deserves praise for not pushing state workers toward early retirement, a technique governors used in the past, which created much of the problem today.

Given the tactics the Legislature employed this year and its likely unconstitutional violation of the spending cap, the question is who is going to hold our elected officials accountable. After all, every state elected official takes an oath to support and defend the U.S. and Connecticut constitutions. The big question now is, will Governor Malloy honor his oath to uphold the state constitution, reject the budget and demand a revision to the spending cap definition? After all, the buck stops at his desk.

David Walker is a Bridgeport resident and former U.S. Comptroller General. He also is founder and CEO of the Comeback America Initiative.